A plan by India's central bank to swap old gold in its vaults for purer metal abroad that it could pledge or sell would have the added benefits of reducing gold imports and easing pressure on the balance of payments. The Reserve Bank of India would sell relatively impure gold from its own vaults - some dating back to before independence - and receive the equivalent worth of purer yellow metal delivered to the Bank of England, under a scheme outlined on Wednesday.
The swaps would not involve money changing hands, according to three officials aware of the development. The RBI has parked gold abroad in the past, once in the throes of the 1991 financial crisis. It did a similar swap in 1998, according to a report at the time, before Russia's default and devaluation caused a meltdown across emerging markets.
Governor Raghuram Rajan had to contend with a balance-of-payments shock when appointed last autumn and has taken several steps to improve the management of India's $315 billion of gold and foreign exchange reserves. The old gold is held in the RBI vault at Nagpur, considered to be the geographical centre of British colonial India - in other words, about as far away as possible from the international financial system. Holding the gold offshore would make it possible for the RBI, if needed, to raise funds using the metal as collateral, or to sell it to defend the value of the rupee.
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